Anthony Patrick O'Brien: Why immigration is good for the U.S. economy

Immigration is good for the economy. Most economists agree with that statement, although many non-economists don't.

Here's a key economic benefit from immigration: When people are kids and when they're old, they consume more than they produce, which is a drain on the economy. In between, they produce more than they consume.

Take a Nigerian immigrant who arrives in the United States at the age of 18. Nigeria was stuck with his less productive years, allowing the United States to benefit from his more productive years. About one-quarter of the native-born population of the United States is less than 18 years old, but only about 6 percent of immigrants are. And a slightly smaller percentage of immigrants are older than 70.

But isn't this age advantage more than offset by the greater burden immigrants impose on government programs? It isn't. Refugees are the immigrants most likely to use government programs because they are least likely to have family members or other connections to rely on. William Evans and Daniel Fitzgerald of the University of Notre Dame analyzed a sample of 20,000 refugees who entered the United States beginning in 1990 and found that, during their first 20 years in the country, they paid $20,000 more in taxes than they received in government benefits.

President Trump wants economic growth of at least 3 percent per year. For the economy to grow, the labor force and labor productivity must increase. In 2017, the working-age population actually fell as a result of the long-run decline in birth rates and the aging of baby boomers.

Unless immigration rates are at least maintained at current levels, the U.S. labor force is set to enter a period of long-run decline. To hit a 3 percent growth rate with a declining labor force, labor productivity would have to increase at implausibly high rates. But without higher rates of economic growth in coming decades, funding Medicare and Social Security payments and public employee pensions will be very difficult.

But haven't immigrants reduced wages of native-born workers? It would seem logical that immigration drives down wages of low-skilled workers, but economists have found little indication of it in the data. George Borjas of Harvard's Kennedy School, himself a Cuban immigrant, believes he has found evidence in the effects of the 1980 Mariel boatlift.

During that episode, Fidel Castro briefly allowed some Cubans to flee to the United States. The result was a surge in the number of low-skilled workers in Miami and, according to Borjas, a significant decline in wages of low-skilled workers there relative to other cities. Borjas believes that this episode suggests how immigration may be affecting wages in situations where the data are more difficult to analyze.

Strange as it may seem, the long-ago Mariel episode and Borjas' analysis of it have become a focus of the current debate over the economics of immigration. I'm a little skeptical of Borjas' results, but too much of the (sometimes ferocious) criticism of Borjas, in my view, stems from displeasure with the supposed political implications of his research rather than with its technical accuracy. (Disclosure: Years ago, Borjas and I were briefly colleagues on the faculty at University of California, Santa Barbara.)

Gianmarco Ottaviano of the London School of Economics and Giovanni Peri of UC, Davis, looking at U.S. labor markets, estimate that between 1990 and 2006 new immigrants reduced wages of previous immigrants by about 7 percent but did not affect wages of native-born workers. This study has its critics as well. Given the difficulty of separating the effect of immigration from other factors determining wages, economists may never settle this issue. But it seems unlikely that immigration has had much impact on wages.

Some opponents of immigration believe that recent waves of immigrants are assimilating more slowly than previous waves. Evidence indicates, though, that recent immigrants are learning English and closing the education and earnings gaps with the native population at nearly the same rates as did previous immigrants. Despite the tragic murder of Kate Steinle in San Francisco, research by Kristin Butcher of Wellesley College and Anne Piehl of
Rutgers University
indicates that immigrants, legal and illegal, are jailed at a rate that is only 20 percent that of the native-born population.

Still, advocates of restricting immigration are concerned by cultural changes they see immigrants as causing and believe recent immigrants are slow to assimilate socially. Some people resent that millions of immigrants are in the country illegally and worry that admitting refugees increases the risk of terrorism.

Economics can't directly address these political concerns. But my guess is that politics, rather than economics, will end up deciding the outcome of the debate in Congress over immigration policy.

Anthony Patrick O'Brien, a professor of economics, emeritus, at Lehigh University, is co-author of several leading economics textbooks with Glenn Hubbard, including "Economics" and "Money, Banking, and the Financial System."